At the end of August the chairman of the US Federal Reserve, Jerome Powell, dropped a bomb into the world’s financial system and pretended it was a feather.
“Following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time… If excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal, we would not hesitate to act”, he said.
After trying everything in the classical economics texts to get economies re-started – including vast sums of money, the slashing of interest rates, boosting of asset purchases – the US Fed has turned to its last weapon – inflation. Sure, Powell spoke of ‘moderate’ inflation – but what does ‘moderate’ mean?
He reminded me of Mr Burns in The Simpsons: “Release the hounds!”
‘Japanification’ with a twist
The developed world is headed for what the Financial Times has termed ‘Japanification’. It pointed out that Japan has long has an inflation ‘target’ of 2% per year but, even with massive central bank-fuelled stimulation, it never got closer than around 1%. The same article reluctantly floated the idea that ‘helicopter’ money – dropping money from the skies on people to encourage them to spend – was inching its way closer, as perhaps the final tool left to central bankers desperate to stimulate inflation.
The twist is that this has already happened in Singapore, Hong Kong, India, the UK – and the US. Governments have ‘given away’ money to individuals and families to prop up their economies. This helps to explain why the price of gold has gone up so far, so fast.
A muddy picture
The wider picture is muddy right now. The US dollar price of gold has slipped from its 6 August peak of more than $2,000 per troy ounce to around $1,935 today: the US dollar has strengthened a little – and dollar strength always undermines gold prices.
Is the glass half-empty or half-full? Gold has lost 3.3% since the August peak – but is almost 30% higher than it was this time last year.
We know that many of the tens of thousands of Glint customers have joined because gold has a strong defence-against-uncertainty history. That remains true today. What everyone wants is price stability – the certainty that X will cost the same tomorrow as it does today. That certainty was always an illusion however, as most central banks have tried to achieve a small amount of inflation, around 2%. That inflation over 20 years will almost halve the value of your paper money.
You work hard to get what you have. Whether you have a million or a few hundreds, the principle is the same – barring some good fortune, very little is gained without work. Understandably you want to defend your gains, your income – particularly right now in a period of deep uncertainty.
Economists, politicians, financiers are squabbling (as usual) about the right course of action to get out of the global economic mess. Their voices are like those of Greek mythology’s Sirens – seductive, tempting, self-certain. Their wails are confusing. Deep structural changes are happening in the worlds of work, finance, education, health, government.
Amidst all this mayhem there is a life raft for all – gold and Glint. If you buy, spend or save with paper money, you can be certain that you will, in the long term, find that X costs you more. Because what happens to that paper money is not in your hands.